The party who seeks to utilize the Business Records Exception must come to trial with a witness who is competent and prepared to lay an appropriate foundation
Under the Federal Rules of Evidence and the evidentiary codes of the states, hearsay — a statement, other than one made by a witness at trial, offered to prove the truth of the matter asserted — is inadmissible, except as specifically provided by the governing evidentiary rules. One key rule for all corporate counsel to be aware is the Business Records Exception. This exception provides that the records of a regularly conducted business activity can be admitted, over an otherwise appropriate hearsay objection, upon a properly laid foundation of a custodial or other qualified witness.
Litigation counsel must establish the following in order to admit records under the Business Records Exception:
- The record was made at or near the time of the event
- The record was made by or from information transmitted by a person with knowledge
- The record was kept in the ordinary course of a regularly conducted business activity
- It was a regular practice of that business to make such a record
The foundation for the above elements must be laid by a “custodian” of the records or “another qualified witness.”
Companies depending on admission of business records should be aware of recent developments interpreting the Business Records Exception owing to the wave of foreclosures in Florida. In those cases, servicers and lenders rely on business records to establish “standing” to pursue to the action. Usually, a “corporate witness” appears at trial to offer the necessary documents under Florida’s version of the Business Records Exception. In the vast majority of these cases, if the records are not admitted pursuant to the Business Records Exception, the plaintiff will lose the case, years of time and owe attorney’s fees to not only its own counsel, but also counsel for the borrower.
Laying a proper foundation
The witness must qualify as a custodian of the records, or “another qualified witness” as described in both the Federal Rules of Evidence and the Florida statutes. To be an “other qualified witness,” United States v. Wables says that it is not necessary that the person laying the foundation for the introduction of the business records have personal knowledge of their preparation, only familiarity with the record-keeping procedures of the organization. Bear this is mind when assisting litigation counsel in preparing for trial.
The witness should be someone with significant experience with, and knowledge of, the business and its various departments. They should also have knowledge of the roles and responsibilities for those employees responsible for the business’s records keeping systems. A witness who cannot offer these core competencies may not be able to satisfy the essential elements of the Business Records Exception. Glarum v. LaSalle Bank holds the affidavit of the loan servicer’s employee inadmissible as a business record where the employee did not know who entered the data he relied on, whether the computer entries were accurate when made, or how incorporated data from prior loan servicer was derived. In addition, WAMCO XXVIII, Ltd. v. Integrated Elec. Envs., Inc. found that the Business Records Exception satisfied where a loan servicer’s records incorporated data from a previous servicer, and the officer of the current servicer testified he had worked on the loans at issue and verified the payment data, and described his company’s verification process.
Predecessor and prior servicer records
An additional level of complexity is added when relying on a prior servicer’s business records. In Hunter v. Aurora Loan Services, the servicer relied on employee testimony at trial regarding records necessary to establish standing. These records were generated by a prior servicer for whom the witness had never worked. The trial court found all of the records admissible under the Business Records Exception. The first DCA reversed and rendered on appeal, concluding that the trial witness for the servicer could not provide a foundation to support admitting the prior servicer’s records under the Business Records Exception:
…Mr. Martin was neither a current nor former employee of …[the prior servicer]…, and otherwise lacked particular knowledge of the …[prior servicer’s]… record keeping procedures. Absent such personal knowledge, he was unable to substantiate when the records were made, whether the information they contained derived from a person with knowledge, whether …[the prior servicer]… regularly made such records, or, indeed, whether the records belonged to …[the prior servicer]… in the first place…
Because the current servicer brought no other witnesses to trial capable of laying proper foundation, the servicer lost the case.
The Business Records Exception is a valuable evidentiary tool, but the party who seeks to utilize it must come to trial with a witness who is competent and prepared to lay an appropriate foundation which satisfied the statutory requirements. Identification of this issue and the witness testimony required must be performed early in the case to avoid a costly dismissal.
Republished with permission. This article first appeared in Inside Counsel on November 20, 2014.